Stock Analysis

Looking For Steady Income For Your Dividend Portfolio? Is Sabre Insurance Group plc (LON:SBRE) A Good Fit?

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LSE:SBRE
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Is Sabre Insurance Group plc (LON:SBRE) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

Sabre Insurance Group pays a 7.0% dividend yield, and has been paying dividends for the past two years. It's certainly an attractive yield, but readers are likely curious about its staying power. Some simple research can reduce the risk of buying Sabre Insurance Group for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Sabre Insurance Group!

historic-dividend
LSE:SBRE Historic Dividend December 21st 2020

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 71% of Sabre Insurance Group's profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

Consider getting our latest analysis on Sabre Insurance Group's financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. During the past two-year period, the first annual payment was UK£0.1 in 2018, compared to UK£0.2 last year. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time.

The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Sabre Insurance Group's earnings per share have shrunk at 21% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Sabre Insurance Group's payout ratio is within an average range for most market participants. Earnings per share are down, and to our mind Sabre Insurance Group has not been paying a dividend long enough to demonstrate its resilience across economic cycles. To conclude, we've spotted a couple of potential concerns with Sabre Insurance Group that may make it less than ideal candidate for dividend investors.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Sabre Insurance Group (1 is concerning!) that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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